Buck: Companies Changing Up Corporate Boards

August 19, 2003 (PLANSPONSOR.com) - More than half
of US companies are seeking new board of director members
with specific expertise and realigning the membership of
board committees, as companies are revamping board
structures, practices and compensation.

Leading the changes and the serious considerations
are the 56% of companies that are seeking out board members
with specific experience.
Similarly, nearly half (49%) are
hiring outside or independent
consultants, according tothe Board of Directors Compensation Survey conducted
by Buck Consultants.

A very popular choice among those surveyed were the
nearly 75% that have board members with financial reporting
experience, notably, other companies’ CEO and CFOs.
Of those that have not sought new members, 24% said
they are considering doing so in the next year.

However that is not to say that the good ‘ol boy
network of interlocking boards – where an executive of
company A serves on the board of company B, and vice versa
– is alive and well.
In fact, only a fraction of the survey (10%) report
having any remaining interlocks.

Board of Change

Even for those companies not looking to shuffle the
makeup, change is still in the air.
More than half of those surveyed (62%) said they are
either considering or have recently realigned the
membership of their board committees and 50% have or are
considering increasing the frequency of committee meetings.
Other examples of changes to board policies include:

47% – hold board meetings with company management
present

35% – provide director education

17% – increased the number of meetings for the full
board.

In addition, virtually all companies
now have both audit and compensation committees and the
median annual number of audit committee meetings has
increased to six.

The changes come for a variety of reasons, most
notably, the introduction of the Sarbanes-Oxley Act in
2002, continued shareholder concerns and broad changes in
the US economic environment.
However, the degree of change, and the specific
solutions implemented by companies, are far from uniform.
Some organizations have moved quickly to alter board
practices, while others – particularly smaller and less
mature companies – have taken a “wait-and-see” approach.
Still, other companies appear content with their current
practices.

“This initial response is a cautious one,
indicating that companies are focusing on compliance with
the new Act’s legal requirements. Results also show
relatively small-scale adjustments to Board structure,
practices and compensation rather than more contentious
issues, such as the use of lead directors or formal CEO
evaluations,” said Edward Speidel, a principal in Buck’s
compensation consulting practice. He also noted
that the survey showed most of these changes are taking
place at larger, more visible companies (more than
$1 billion in annual revenue) which are more active in
introducing reforms, with the medium- and smaller-sized
companies following behind.

Compensation

With the changes, some companies have reassessed the
compensation packages for outside directors, which has
resulted in increases for some directors in cash
compensation.
Still most prevalent among these means are
retainers, being paid out by 91% of those polled.
Of those, 76% pay the entire retainer in cash, distantly
followed by companies that pay retainers in varying
combinations of cash, equity and stock options. Most
companies (63%) pay retainers annually, however, a
significant number (30%) pay them quarterly.
Not surprisingly, the size of the company is also directly
proportionate to the size of the retainer, with companies
reporting annual revenues greater than $10 billion paying
median annual cash retainers of $50,000 and those will
annual revenues under $100 million paying median annual
cash retainers of $17,500.

Further, many of the companies, particularly the
larger ones, pay cash meeting fees that typically run in
the range of $1,000 to $1,500 per meeting.
In fact, 69% of companies now pay directors a
per-meeting fee on top of an annual retainer. Not
surprisingly, non-executive board chairmen often command
larger annual retainers and/or higher per-meeting fees.

With the addition of stock option awards, Buck found
the total amount companies pay their directors annually to
range from $72,500 – among companies with revenues between
$100 and $500 million – and $127,900 – for companies with
revenues of more than $10 billion.

Buck Consultants surveyed 166 US companies, with a
median revenue of $1.1billion, representing a mix of
industries.Interested parties may obtain a copy of
the study by contacting Michael Bendorf at (415) 617-3903
orbendorf.mo@buckconsultants.com.